Often Overlooked Tax Deductions for Homeowners

Did you do any home improvements last year?  If so, did you know you can deduct the sales tax?  And if you took out a home loan for it, you might be able to deduct the interest.

That’s just one of the twenty one  most overlooked tax deductions that Kiplinger reported on recently, and some others we’ve found for you specifically for homeowners.

 

State Sales Tax

If you think the deduction for state sales taxes expired in 2011, you’re right. But a bill approved this past Jan. 1 restored it, and the restoration is retroactive. Review the IRS restrictions, but don’t overlook deducting big-ticket purchases, including major home improvements.

Mortgage Points

You may want to talk to a professional about this one since it can get complicated. When you refinance a loan for the first time, the points are deductible, with a caveat: You can’t deduct them all at once, as you can with an initial home purchase. Rather, your tax-deductible points must be spread out over the life of the loan.  (And if you just bought a home this year, don’t forget to deduct those points!)
But here’s the important tip: When you refinance again, you’re essentially ending the prior loan, and you can deduct the rest of the points from that transaction with one exception. (You knew there had to be a catch)  If you re-refinance with the same lender, then you roll those as-yet-undeducted points into any new points and spread it out the total over the loan term.

Energy-saving home improvements

Tax credits for some energy-efficient home improvements officially expired at the end of 2011, but like the sales tax, Congress recently revived them, retroactive to 2012. The maximum credit for 2012 is $500 of which only $200 can go towards windows. And that $500 is the maximum you can claim on all of your tax returns from 2006 through 2013.
The good news is that there is no limit for a different credit for homeowners who installed qualified alternative energy equipment like geothermal heat pumps, solar hot water heaters, etc.  That credit can be 30% of the total cost including labor and is valid through 2016.

Improved Home Office Deduction

A tax break that allowed business owners to write off 100% of the cost of qualified assets placed into service expired in 2011. Congress didn’t extend it retroactively, but it came back as a break to write off 50% of the cost of a qualified asset for purchases in 2012.
However, Congress did restore retroactively the ability to write off the full cost of new assets in the year that you put them into service.  The former limit was $39,000, but now it’s up to $500,000.

Mortgage Interest Paid at Settlement

You can find this in your closing statement.  If you have any questions, contact your loan officer. You will have to use Schedule A and itemize.

Property Taxes

You can deduct your state and local property taxes for the assessed value of the real property unless your money is being held in escrow for the purpose of paying the taxes.

Selling Costs

You can deduct simple expenses that you incurred selling a home in the past year including repairs, advertising expenses, title insurance, and broker’s fees.  The repairs can only be deducted if they were made because you intended to sell.

Mortgage Insurance Premiums

If you had PMI (private mortgage insurance) for your primary residence, you might be able to deduct the cost of the premiums. This deduction also includes a second home if it’s not a rental property.
However, it phases out once your adjusted gross income reaches $100,000.  You can only deduct the premiums paid for the current tax year.  And there are some other rules and regulations if your mortgage is provided for by the Federal Housing Administration, Department of Veterans Affairs and Rural Housing Service. Contact a licensed tax professional to find out what you are eligible for.

Home Improvement Loan Interest

If you took out a loan specifically to improve your home, you can deduct the interest because it’s considered a “capital improvement”. However, it has to specifically improve and increase the value of the home.  So new paint or carpeting doesn’t count, but adding on a new bathroom or a roof might.

Construction Loan Interest

Let’s say you’re finally ready to build your dream home on the property you’ve owned for awhile.  You may qualify to deduct the interest.  The IRS has quite a number of regulations on this including that it will be used for personal purposes.
Remember, everyone’s situation is different. Contact a licensed professional to review your particular situation.  If you need to, talk to them after April 15th and file an amended return.
Will you be getting money back this year?  If you are, will you use it for a vacation or put it into savings?

Should You Fix Up Your Home or Trade Up?

With mortgage rates so low, you may be asking  yourself if you should trade up your home to a larger one or if you should look into  an equity line of credit and add on additions to your current home.

Money magazine has a detailed article in their April, 2013 edition that looked at two case studies. For one family, they needed more room than their current home could be expanded to. For the second couple, they were happy adding on for what they needed.
The case studies evaluated how much space was needed, what the budget would be, the ROI, and the impact on the homeowners.  The couple that remodeled their home will have to find a short term rental apartment for the six months that their house is being renovated. The family that traded up has the cost of movers, but they may need additional housing if they sell their home before they close on the new one.

So what should you look into?

Step One – Is Selling a Realistic Option?

If homes in  your area aren’t selling, you may not have much choice. Of course, you could look into turning your current home into a rental, and buying a new home. Again, you’ll need to do some soul searching to decide if you want to be a landlord, and if your finances can afford that option.
Also, if your credit is not very good or you’re buried under credit card debt, you should probably wait until you’re on more stable ground.

Step Two – Do You Want to Move?

If you really love your neighborhood, and the schools, and the shopping, parks, bike paths, neighbors, you may want to ask yourself if you really want to move.  If the answer is no, then you can start to look at how much extra space do you want, and if it’s possible with your current home and lot size.

Step Three – Where Do You See Yourself in 5-10 Years?

If you’re in a small townhouse, and you intend to start a family, you may want to look into buying a new house.  If you’re in a medium size house, but your kids will be gone by then, you may want to stay put.  You may be retiring in 5-10 years and no longer want a house with stairs, or one that’s closer to more senior activities.

Step Four – Crunch Those Numbers

You may want the help of a tax advisor when you look at whether or not you will be subject to capital gains taxes if you sell your current home.  Consider having a home appraiser come in to let you know the current value of your home.  Ask them how it would impact the value if you added on the additions.  Also, you will want to have a home inspection to identify any major or minor repairs that would need to be done before selling.
A good general contractor can help you estimate the costs involved with the remodel. You can estimate costs of green upgrades and other remodeling that you may have been wanting to do.
Figure out if you would need to spend time living in a rental while your home is being remodeled or if you sold your home before you bought a new one.
Get an estimate from movers if it’s free with no obligation.
Calculate your expenses if you sold the home including termite inspection, home inspection, closing costs, any penalties for early pay off of your current mortgage, etc.
Then add it all up.

Step Five – Think and Talk

Spend some time on your own thinking, and spend some time with your partner talking about the whole situation.
And do remember, if you remodel, you will get it exactly how you want it.  However, if you’re not that happy where you’re living, you could find your dream home and have the opportunity to move into it.  Zillow has a useful article with some calculators here.  They also provide a list of the return on investment for remodeling areas of your home.

Step Six – Look Into Financing

Talk to your mortgage loan officer to find out what you would qualify for with a new mortgage or with a home equity line of credit.  They may have some programs available that would be perfect for you.

Households Return to Borrowing Ways

The fourth quarter of 2012 reflected that consumers are starting to feel more comfortable about borrowing after years of cutting debt. Household debt rose 0.3% to $11.34 trillion. Household debt includes credit cards, student loans, auto loans and mortgages.

 

 

New Mortgage Debt Increases

Per the Wall Street Journal:

Americans took out $553 billion in new mortgages to buy homes, and far fewer consumers fell into foreclosure. That nudged up the amount of mortgage debt. The upshot: After years of shrinking, the nation’s mortgage tab—the biggest source of consumer debt—is stabilizing and possibly poised to rise.
The report suggests Americans are recovering from their boom-era debt hangovers. If consumers shape up their finances, they might be more willing to take advantage of historically low interest rates to buy homes and spend more. That could boost hiring and revitalize growth. The economy grew at an annualized rate of only 0.1% in the fourth quarter, the Commerce Department said Thursday.

Economists at the New York Fed noted that the uptick in consumer borrowing using car loans and mortgages seems to indicate that the central bank’s low-interest-rate policies are succeeding.
We Americans still don’t have as much debt as a few years ago down from a peak of $12.7 trillion in 2008. Credit card balances also fell 4% throughout 2012 suggesting that many of us aren’t spending freely on big-ticket items either.

Still, Americans are gradually borrowing more to finance other things like homes and cars.
Overall housing-related debt, including home-equity loans—where consumers borrow against the equity in their homes—was roughly flat at $8.6 trillion late last year. But that masked considerable improvement: A combination of rising mortgage debt and a 13% fall in foreclosures offset an increase in defaults on home-equity loans.

Distressed Properties Prices On Rise As Well

Per TheStreet:

Distressed property prices are rising on the back of strong investor demand and limited inventory, RealtyTrac said in a report released Thursday.
Properties in foreclosure or owned by lenders sold for an average price of $171,704 during the fourth quarter, increasing 2% from the third quarter and a4% from the fourth quarter of 2011.
Short sales — where the borrower and bank agree to sell the property for less than the amount owed — also saw improving prices, helping to reduce lenders’ losses. Short sales in 2012 were short of the loan amount by an average of $81,621, down 7% from an average $87,809 in 2011.
Mortgage technology firm FNC measures the foreclosure discount by comparing the foreclosure sale price to the underlying market value of the property, which is the market price the seller would receive if the property were sold under normal circumstances.
FNC last week reported that the foreclosure discount had dropped to 12.2% in the fourth quarter of 2012, compared to the 25% discount seen at the peak of the credit crisis in 2008 and 2009.
According to that report, higher-priced foreclosed homes were selling for close to market value, while lower-priced homes still suffered an 18.4% discount in the fourth quarter of 2012.
According to RealtyTrac, the average price of a foreclosure sale is at a 30% discount to the average non-foreclosure sale price.
Distressed property sales still account for 43% overall existing home sales, which has the effect of depressing overall prices.
However, the number of new foreclosures have been declining, while the existing inventory of foreclosed homes has been rapidly seized by yield-hungry buyers.

So, mortgage rates are still at historic lows, but may not be for long if more people are applying for mortgages, investment mortgages, refinances, and home equity lines of credit. As we discussed in a prior post, mortgage rates vary based upon a variety of factors, including the number of people applying.
So if you’re looking into whether you should apply now, contact me.  I am a reputable mortgage loan officer who works diligently to stay on top of rates and market factors that impact the mortgage market. I will be able to help you find the right options whether you’re a first time buyer or looking to pick up investment properties.

Refinancing When You're Underwater

 

If your home is  worth less than what you owe, you’re underwater, and that’s not a fun place to be, especially with interest rates at historic lows.

You can make the payments, but you’d rather not spend that much on them.  Here’s what you can do.

Step One: Are you really underwater?

Housing prices have gone up in a number of areas.  Your home may have crossed the threshold.  Or perhaps you received a low appraisal when you purchased the home.  (Please see our other blog post on tips for increasing your appraisal value.)

 

 

Step Two: Are you current on your payments?

If you can show that you’re a good lending risk and all of your obligations are current (see our post on your credit score), lenders tend to be more flexible as you’re not a credit risk.

Step Three: The details

First, figure out who guarantees or owns your mortgage.  If it’s backed by  Fannie Mae, Freddie Mac, FHA, VA or USDA, then there’s a good chance you can refinance.
There is a Federal program called The Home Affordable Refinance Program (HARP) part of the Making Home Affordable program.  They have certain requirements for refinancing:

• You are the owner-occupant of a one- to four-unit home.
• At the time you apply, you are current on your mortgage payments.
• The amount you owe on your first lien mortgage does not exceed 125 percent of the current market value of your property.

If your loan is backed by the FHA, you will want to look into the FHA Streamline Refinance program.  Their requirements are:

• You will not have made a late payment in the past 12 months.
• You will not have completed an FHA Streamline Refinance in the prior 6 months.

If you’ve financed with Veterans Affairs (VA), then you will want to find out more information about that Interest Rate Reduction Refinancing Loan (IRRRL).  Their only requirement is:

• You must refinance into a loan with a lower interest rate unless you are refinancing into a fixed-rate mortgage from an adjustable-rate mortgage (ARM).

And if you’ve been guaranteed by the USDA, there is a pilot program (only available in AL, AR, CA, FL, GA, IL, IN, KY, MI, MS, NV, NJ, NM, NC, OH, RI, SC and TN) called the Single Family Guaranteed Rural Refinance Pilot.  Their requirements are:

• You will not have made a late payment in the past 12 months.
• Your current mortgage rate must be 100 basis points higher than the refinance rate. Example: If your current interest rate is 6 percent, you would need to refinance into a rate that is equal to or lower than 5 percent.
• Make sure you contact your current servicer or the USDA Rural Development Office.

What If I’ve Missed Some Payments

Sometimes, things happen.  You had the flu and forgot to schedule the payment until it was considered late.  Money was tight.  We’ve all been there.  There is a program as well called the Home Affordable Modification Program (HAMP)

The Last Step

The final step for all of the options is to contact me and inquire about your eligibility.  As a Loan Officer, I am trained in all of these programs and monitor the rates to find the best options for you.

Why Mortgage Rates Change So Much

 

Did you ever wonder why mortgage rates fluctuate so much and you’re encouraged to lock in a rate?  Why can’t they just stay the same for a few weeks or a few months.

They’re a little like stock prices in that they change based upon supply and demand, and the rates are affected by inflation rates.  Additionally, they are impacted by the secondary mortgage market.

What Is the Secondary Mortgage Market?

The secondary mortgage market is where loans and servicing rights are sold by market leaders Fannie Mae and Freddie Mac, and also purchased by investors such as mutual fund companies, banks, hedge funds, and teacher and municipal pension funds.  (see more information in this Yahoo! Homes blog post)

What are the other things that impact the rates?

From Homeguides in the San Francisco Chronicle:

Growth

The economy naturally grows and shrinks and is very sensitive to events within the economy as well as outside the economy.  When the economy is on a growth path the demand for money increases and interest rates are pushed upward. The opposite is true when economic growth slows or stops.

Inflation

A key concern during periods of economic growth is inflation. Inflation increases prices and deteriorates spending power in the economy, which slows growth. The implication for future homeowners is that inflation pushes mortgage rates higher as lenders increase interest rates to hedge against the effects of inflation on profits, making home buying more expensive.

Federal Reserve Board

Economic activity is measured nationally to determine the appropriate interest rate.

Money Supply

Although the Federal Reserve is unable to directly set interest rates, the agency can influence rates indirectly by increasing or decreasing the supply of money in the economy. By increasing the money supply, the Federal Reserve puts downward pressure on interest rates. Decreasing the money supply puts upward pressure on interest rates. Consequently, if the Federal Reserve decreases interest rates, mortgage rates come down and borrowing for a home purchase is cheaper and encourages home buying.

We’ve written posts on how this is going to impact not only mortgage rates but fees that are charged.  With all of these factors, rates can change frequently.

So What’s This Mean For You?

Work with a reputable mortgage loan officer.   A good loan officer will diligently monitor interest rates for their clients, and advise them of opportunities to manage their mortgage debt at a better rate. They will also let you know up front about industry trends that may impact your rate, and offer recommendations as to the best time to lock in a rate during the process.

January 30, 2013

Your Best Deals In February

It’s hard to believe we’re almost at the end of January.  We hope you got some good deals for your home, but if you didn’t, there’s plenty more for February.

There are some major events in February that will yield some good bargains and opportunities, so plan ahead.  However, there are some things you may want to wait on like the iPad mini since Apple usually releases new products end of April or early May.  At that point, the prices on the prior model will drop.  Also, if you wait until July, there should be some great prices on refurbished models.  Also, there is a mobile show in Spain in late February when the companies introduce their new mobile phone models, so wait to purchase a new phone until March when the prices on the older models will go down.

Still A Good Deal

It’s still a good time to buy 2012 electronics like HDTVs and some computers.
Tax software still has some pretty good deals.
There is still a large inventory available on outerwear like winter coats.
It’s also still a good time for things like air conditioning, boats, motorcycles, etc.  And it’s a good time for wedding supplies since most people still get married in the Spring and Summer.
For your home maintenance, you should be able to find discounts from roofers and other home improvement or remodeling contractors.  The weather may delay the completion of the project, but you should get a good discount as the contractors like to stay busy.

Valentine’s Day Sales

Now, we don’t really mean buy things before Valentine’s Day as the discounts will be minor.  But after Valentine’s Day, you should be able to get some significant discounts on jewelry, lingerie, candy, cards, decorations, etc.

President’s Day Sales

During the three day event, you should be able to find some incredible bargains like 80% off of bedding, apparel, tools and furniture.  Other stores will tack on an additional 20-30% off existing sales
Furniture manufacturers release their new models in February, so you should be able to find some great deals when the stores want to clear out floor space.


Resources
MSN Money Best Deals in February
DealNews: Best and Worst Things to Buy in February
Lifehacker: Best Buys In February
Yahoo! Shine: 5 Things to Buy in February

How Often Does Your Credit Score Change?

January 24, 2013

This is a question we often get during the mortgage process.  A credit check may have uncovered some incorrect information, and you get it updated.  So how fast will it change?

What is a Credit Score?

Per the reporting agencies (TransUnion, Equifax, and Expperian), your score is a snapshot of your current credit report as well as how many pulls you have had on your report.  For example, from Yahoo:

“Right now it’s 11:40 my time,” said Rod Griffin, director of public relations for Experian, when I interviewed him for this story. “Let’s say a lender requested your credit report right now. If you apply for credit (again) in an hour your credit report could be different,” he says, referring to the inquiry that would have been generated when the first lender accessed my credit information.
“Credit reports can change as often as every day if there is new information provided to the credit bureaus,” says Barry Paperno, community director for Credit.com.
If you want to be technical about it, you don’t really have a credit report on file with the credit reporting agencies to begin with. Explains Griffin: “We have information from each of the lenders, and we go out to our databases and compile information from those databases when a credit report is requested. Your credit report represents a snapshot of your credit history at any given point in time.”
That means that the information is available in the credit reporting agencies’ (CRAs) databases at the time a credit report is requested is the information that will be reported. “You don’t have a credit report until you apply for credit and it’s requested,” Griffin says.
But it’s not like checking your online bank account and seeing the debit card purchase you made a few minutes ago in your running balance. “It’s not real time,” says Griffin.

So What Do You Recommend?

• Set up payment reminders so you never have a late payment again.  Do remember that a lot of credit card companies want the payment a few days before the due date to have time to process it.  It’s not fair since they say it’s due on a certain date, but it’s best be a few days early.
• Set up automatic payments using online banking where you can.
• Reduce the amount of debt you  owe.
• Check your credit report annually.  You can get your free report here.  Now, this won’t give you a score unless you pay for it.  But you can at least look for mistakes which do happen.
• Get your credit report 3-6 months before applying for a major loan.
• Be patient.  It can take 30-60 days for information to be updated on a credit report after you’ve made changes (like paying off a student loan, or had disputed information resolved)

8 Surprising Things That Impact Your Credit

And what would a post be without some trivia.  This is from Credit.com blog:

1. Renting a car
2. Applying for credit (even when you aren’t rejected)
3. Disputing an account
4. Having credit cards, but no loans
5. Just a single late payment
6. Closing an account
7. Divorce
8. Late library books